Posted: Feb 10, 2017 10:18 am
Don't have time to give a full and proper answer, hopefully I'll remember to circle back later.
Couple of things shouted out at me though, that I'd like to quickly touch on.
Might be me that put the wrong spin on the question. I'm not sure it matters though, I think the answer is essentially the same, since we already have mechanisms that reduce or prevent this kind of implosion happening.
Are companies mandated to increase their share price, or just maximise it? For this discussion, the distinction seems important.
What I'm suggesting about there being a limited demand for capital is that it's only worth paying to borrow money if you have a more profitable way of investing that money available. This is dependent on the size of the total market outside of finance - if that market is completely (and probably near optimally) filled then there are no investment opportunities to exploit. In this hypothetical situation where all wealth is being subsumed by lenders, that's exactly what's happened, isn't it?
Couple of things shouted out at me though, that I'd like to quickly touch on.
VazScep wrote:I might have misunderstood the OP. To me, the question isn't "why hasn't this happened?" but "given the way we're doing things, isn't this inevitable?" It appeals to my inner doomsdayer.
Might be me that put the wrong spin on the question. I'm not sure it matters though, I think the answer is essentially the same, since we already have mechanisms that reduce or prevent this kind of implosion happening.
VazScep wrote:Now I'm not sure there's a limited demand for capital. Every floated company is legally mandated to increase the value of its shares, and that might mean doing more business, which means having more capital. Moreover, those companies normally have debts to pay, and a debt lent at interest comes with an expectation that you'll have more capital in the future. You can get further in debt to pay off your debt, and consumers were introduced to this wonderful idea in the form of loan consolidation. But if we really do have a debt based economy, where the majority of the money in circulation is just a debt on a balance sheet, it wouldn't surprise me if this was inevitable.
Are companies mandated to increase their share price, or just maximise it? For this discussion, the distinction seems important.
What I'm suggesting about there being a limited demand for capital is that it's only worth paying to borrow money if you have a more profitable way of investing that money available. This is dependent on the size of the total market outside of finance - if that market is completely (and probably near optimally) filled then there are no investment opportunities to exploit. In this hypothetical situation where all wealth is being subsumed by lenders, that's exactly what's happened, isn't it?